The Great Pierpont Morgan (8 page)

One by one the managements of sick railroads came to him, as to a reliable doctor, for the financial surgery they needed. Presently he was deep in the reorganization plans of the Reading; and in the next few years he reorganized the Baltimore & Ohio, the Chesapeake & Ohio, and other lines. What matter that he was ignorant of the technical knowledge of railroading which it took railroad executives long years to master? In matters of life and death for the corporations which stood behind these executives, it was his word which counted most.

3

From Morgan's successful peacemaking flowed other striking results. Within only a few weeks of the
Corsair
conference it became clear that the principle of co-operation was being eagerly embraced, not only by the Pennsylvania and the Central, but by the other trunk lines. The officers of these lines had often tried to agree among themselves not
to cut rates, but their compacts had broken down. Now, however, there was a new feeling in the air that the owners and heads of the companies meant business, and freight rates and passenger fares began to rise from the low points to which harsh competition had driven them. By the following spring the
Commercial & Financial Chronicle
could cheerfully report that passenger fares between New York and Chicago, which as we have seen had got all the way down to seven dollars, had advanced to twenty dollars for first class and seventeen dollars for second class, “the final step in that restoration of rates which had its origin in the trunk line settlement of last summer.” And in the same conservative journal there was another announcement which reads somewhat oddly today:

Anthracite Coal Combination
—Representatives of the various coal companies met at the house of Mr. J. Pierpont Morgan this week, and informally decided to limit coal production and maintain prices. The new coal combination agrees to mine 33,500,000 tons of coal this year. Last year's output was 31,600,000 tons. An advance of 25 cents a ton was made by the companies on the following day.…

What had happened was that Morgan, having succeeded with one peace conference, had decided to try another one. The anthracite coal business was then almost wholly in the control of several railroad companies which served eastern Pennsylvania—the Reading, the Pennsylvania, the Lehigh Valley, the Delaware & Hudson, and others. Morgan wanted to do something to help the Reading, whose officers had been angry when he had stopped the project for the building of the South Pennsylvania line, which would have been a very handy adjunct to it. He was now reorganizing the Reading; what better way of showing his interest in its future than by a little peace conference on prices and production between the heads of all these coal-producing railroads—the meeting to be held, not on the
Corsair
, for it was March and the weather was unseasonable for yachting, but at his house? There was then no Sherman Anti-trust Law (a fact which explains the frankness of the news report); the agreement
was perfectly legal. But it was, of course, a competition-throttling, monopolistic move, and there was a loud public outcry. Said
The New York Times
, indignantly: “In plain language, this means … a tax upon an important commodity at the will of the combination.…”

It is doubtful if Morgan saw much difference between ending railroad wars and ending competition in the coal industry. This, too, in his eyes, was co-operation in order that all might prosper.

4

Such agreements as Morgan's peacemaking had encouraged were brittle at best. As Arthur Twining Hadley wrote years afterward, “Each [railroad] company is at the mercy of its agents. They will try to steal business from rival concerns by cutting rates. If they are allowed a commission on sales, they will divide it with the buyer; if they are not allowed such a commission they will find a hundred different ways, less obvious but hardly less effective, of rendering a rate agreement nugatory.” Sometimes even the men who gathered round a table to decide on the price they would all charge had their tongues in their cheeks; as a leading industrialist remarked, a price compact usually lasted about as long as it took the quickest man to get to a telegraph office or a telephone and put in a selling order at a lower price. Among the trunk lines there remained a semblance of co-operation, largely as a result of Morgan's influence; but over the country as a whole the granting of rebates and the sale of blocks of tickets by railroad passenger agents to scalpers went right on, as did the building of rival and blackmail lines, especially in the West. In short, the industry was still in an anarchic condition. By the end of 1888 so few American railroads were earning enough money to pay dividends on their swollen capital that the English investors to whom Morgan felt responsible were protesting vehemently, and he decided that it was time to turn on the heat.

So now he called a new and much larger and more ambitious conference; and this time he allied with him, in issuing the call, several other investment banking houses. It was as much as to say, “We represent the owners of your companies. These owners are sick and tired of the way you are
behaving. They want earnings. And to that end they want you people to co-operate.”

By this time there was a new element in the picture. Public fury at the behavior of the railroads had led a number of state legislatures, as early as the eighteen-seventies, to try to regulate the lines within their state borders; and when, in 1886, the Supreme Court of the United States had decided that only the federal government could regulate interstate commerce, it had been manifest that some sort of federal law would have to be passed. So in January 1887 the Interstate Commerce Act was adopted at Washington. It sternly forbade rebates and any sort of discrimination in rates, and it set up an Interstate Commerce Commission to see that freight and passenger rates were reasonable and just, and to require public disclosure of all rates charged. This, to be sure, was little more than a gesture to placate indignant farmers and business men, especially in the West and South; for after its frequent fashion, Congress had given the law enforcers so little authority that there were dozens of ways of circumventing them, and if these failed, one could always go to court and get a decision against them. The almost incredible fact is that between 1887 and 1905, of the cases appealed from the Interstate Commerce Commission which got all the way up to the Supreme Court
fifteen out of sixteen
were won by the railroads against the shippers or other complainants who had brought them!

Naturally, Morgan had been opposed to the passage of the Interstate Commerce Act. He had thought that the abuses in the railroad industry could best be cured by the sort of reform measures upon which he was engaged—substituting co-operation for competition, and honest financing for buccaneering. He had a deep contempt for politicians, and thought that people like himself could handle things much better. He wanted to see the railroads of the country respectably run, at profits steady enough and large enough to maintain the value of their securities; and if reliable men ran these enterprises, who but a demagogue could object? The trouble with these ignoramuses in Washington, he felt, was that they seemed to make no distinction between the crying abuses of the industry and the perfectly sound action it must take to maintain values.

Nevertheless, the law was on the books; and so, when a great company of railroad presidents from all over the country gathered at Morgan's brownstone house in December 1888 and January 1889, one of their first moves was to set up a committee to confer with the Interstate Commerce Commission. But that was a polite gesture toward the nominal authority over the regulation of railroad abuses. The nearest thing to a real authority was the big, solid man with the red nose and fierce eyes who sat at the head of the table at the library in his own house and spoke for the investors who owned the roads.

One can measure the height to which Morgan's prestige and influence had risen by the fact that when the conference of railroad presidents met for its adjourned sessions on January 8 and 10, 1889, every major railroad west of Chicago and St. Louis was represented except the Chicago & Alton and the Southern Pacific—and the absence of Huntington of the Southern Pacific was said not to signify any opposition to Morgan's purpose. Even Jay Gould, who at the time was head of the Missouri Pacific, had accepted Morgan's invitation. The presidents of the trunk lines were there too—Roberts of the Pennsylvania, Depew of the New York Central, King of the Erie, Mayer of the Baltimore & Ohio, Sloan of the Lackawanna, Wilbur of the Lehigh Valley. And representatives of several leading investment banking houses on both sides of the water were likewise on hand—not only Drexel, Morgan & Co., but also Kidder, Peabody & Co., Brown Brothers & Co., J. S. Morgan & Co., and Baring Brothers.

It was too much of a gathering of lions to be an altogether calm occasion. At one point Roberts of the Pennsylvania pointed out sharply that there wouldn't be much trouble about the building of ruinously competing lines if investment bankers didn't provide the money to finance them; to which Morgan a little later replied:

“In regard to the remarks made informally by Mr. Roberts, about building parallel lines and the position of the bankers thereto, I am quite prepared to say in behalf of the houses represented here that if an organization can be formed practically on the basis submitted by the committee, with an Executive Committee able to enforce its provisions, upon
which the bankers shall be represented, they are prepared to say that they will not negotiate, and will do all in their power to prevent the negotiation of, any securities for the construction of parallel lines, or the extension of lines not unanimously approved by such an Executive Committee.”

That cumbersome sentence bears all the earmarks of a statement dictated to a secretary during a hurried recess in a big meeting, and then submitted to other men for suggested revisions, until in the end it bulges obesely with qualifying and amplifying phrases. Yet in effect it was clear enough. What Morgan wanted the railroad presidents to do was to make among themselves a definite agreement not to cut rates, not to build unnecessary competing lines, and so forth. He wanted them to put teeth into this agreement, so that any man who broke it would suffer penalties. And to show his own good faith in making so drastic a proposal he was producing a firm pledge that the investment bankers, for their part, were quite ready to play ball.

The meeting appeared to end successfully. The men who sat crowded in Morgan's library agreed to set up an association of presidents, pledged to live up to the Interstate Commerce Act and also to maintain rates, with a board of managers to arbitrate disagreements between them. Just how strong the teeth actually were was a matter of conjecture from the outset, however. After the presidents had filed out of the library and dispersed on Madison Avenue, a group of the Westerners adjourned to hold a rump session of their own at the Hotel Windsor, and one of them was quoted as saying, “We did not swallow whole the arrangement evidently prepared for us.” And the
New York Times
reporter, writing his front-page story for the following morning's paper, led off with an obviously ironical paragraph:

The New York bankers triumph. The Western railway presidents surrender. Hereafter they will be good. There will be no more rate-cutting and no more railroad wars of any sort whatever—nothing but peace and plenty.

The reporter's cynicism was at least partly justified. Rate wars and competitive gouging did not come to an end. The
following year Morgan held another conference at his house, and that one, too, failed to end the chaos in the industry. He began to realize that wherever he really
must
have order, he would have to impose it himself.

V

NO. 219

1

On the east side of Madison Avenue between Thirty-sixth and Thirty-seventh streets, on the gentle slope of Murray Hill, there had stood since the early eighteen-fifties three massive brownstone houses with ample gardens behind them. All three belonged to members of the Phelps family of Phelps-Dodge copper fame. They embodied the undemonstrative grandeur of respectable prosperity, and Pierpont Morgan had long been impressed with them. And so, when in 1880 it had become clear to him that the high-stooped house at 6 East Fortieth Street was no longer adequate for the needs of his family's expanding life, he bought the southernmost of the three houses—the one at the corner of Thirty-sixth Street, which had originally belonged to Isaac N. Phelps. (It stood where the white marble annex of the Morgan Library now stands, and roughly resembled the remaining brownstone house at the corner of Madison and Thirty-seventh, which at this writing—1948—is the sole survivor of that group of three Phelps houses.) And he employed Christian Herter to remodel the building, moving the street entrance to the Thirty-sixth Street side, utilizing the whole Madison Avenue front for a bay-windowed drawing room, and adding a conservatory on the opposite or eastern side, where it would catch the morning sunlight. In the autumn of 1882 the Morgans moved in; and this house, No. 219 Madison Avenue, remained their town residence throughout the rest of Pierpont's life.

It was quite satisfactory to him, and remained so. Already when he took possession of it the tide of fashion was moving northward. The Vanderbilt family was engaged in an orgy of simultaneous mansion building along the west side of Fifth Avenue between Fifty-first and Fifty-eighth streets, thus establishing a pattern which was destined to last for decades: the
proper place for a prince of industry or finance to build himself a palace was on Fifth Avenue, preferably somewhere between St. Patrick's Cathedral and the corner of Central Park, or else a little farther north, on the east side of the avenue fronting the park. William H. Vanderbilt's new house at the corner of Fifty-first Street was a huge brownstone structure; next to it on the north was another, also of brownstone, built for his daughters. Farther uptown, at the northwest corner of Fifty-seventh Street, his son Cornelius was putting up an even more immense palace of brick and stone. But it was another son of his, William K. Vanderbilt, who was really leading the fashion in residences; for his house at Fifth and Fifty-second, designed by William Morris Hunt, was built of limestone and was a translation to Fifth Avenue of certain features of the design of the fifteenth-century house of Jacques Coeur at Bourges. From now on New York's native brownstone would begin to seem a little old-fashioned; the apt material for a millionaire's house would be limestone, or even marble; and American architects trained at the Beaux Arts, and faithful to the notion that beauty and grandeur were both European by nature and both susceptible of happy transplantation to our crude American shores, would vie with one another in adapting the designs of famous châteaux, castles, and palaces to the residential uses of stock-market speculators and holding-company promoters. It became fashionable not only to imitate the general effect of, say, the Doges' Palace or one of the châteaux along the Loire, but also to import bodily various architectural details and accessories, much as if Western Europe were one great builders' supply store.